Compete or Collaborate? Meeting the Challenge of Private Label Brands

Giving away hundreds of bags of groceries, each filled with store-brand products along with coupons to encourage more private label shopping? That is just one sign of the aggressive strategies that some stores are taking to promote their private label brands— products that offer retailers the opportunity for greater margins and profitability over selling the products of traditional consumer packaged goods (CPG) companies.

From a CPG company’s perspective, the growing popularity of private label brands has long moved from annoyance to competitive threat. Consumers are far more accepting of store brands than they were a decade ago. The Accenture 2012 Store Brand Survey, which sampled more than 500 US consumers about their attitudes toward store brands as well as national-brand products, found that half of those surveyed believe the quality of private label brands to be equal to that of national brands.

Retailers have moved beyond a basic, low-cost sourcing advantage to other areas, such as pricing and promotion, marketing and product development. Some retailers own parts of their own product supply chains. Still others have even decided to enter the premium market, offering new, high-end brands alongside their core, store-label products.

The path to success lies in strategic collaboration in some areas and competition in others—or, perhaps, to exit a particular category entirely. The decision to compete or collaborate1 with private label brands is generally not an either/or but rather a both/and.

The ultimate approach needs to be fashioned at the category—or even product—level. CPG companies should analyze category appeal, competitive potential, market share, brand equity and their relationships with individual retail partners to decide—by product and by geography—what will help drive more growth for the company. The key to success will be the ability to make these decisions quickly, in a structured way, by leveraging timely, analytics-based insights.

A multidimensional analysis

CPG companies need to define where (categories, brands, products) and who (which retailers) to compete against or collaborate with (or, as noted, whether to exit a particular market entirely). The decision should be driven by a multidimensional analysis, one that is likely to differ by geography.

As part of the analysis within each category (see chart), two sets of questions should be asked:

1. Market potential: Where should we play? These questions focus on overall market potential in terms of both category growth and profitability.

Category appeal. Based on the attributes that are important to consumers, what are the categories where a national brand matters? In which categories do consumers appear to be the most loyal to national brands?

Opportunities for profitability. What categories/brands are the most profitable? Where are economics and profitability—including the profitability of different consumer segments—the most appealing? Where do opportunities exist to exploit differentiated capabilities in areas such as intellectual property? Where can we innovate to drive better market potential?

2. Competitive potential: Are we positioned to win? These questions have to do with general competitive potential based on factors such as functional differentiation and brand strength.

Current performance. Where are we currently winning across different geographies, markets, categories and brands?

Brand strength. Where can we leverage the advantage of consumers’ positive impressions of our brand?

Retailer relationships. What is our current relationship with retailers? Which relationships are the most critical for growth?

Making it happenHaving made the decision whether to collaborate, compete or exit, CPG companies can then undertake specific tactics and strategies to improve their chances of success, whichever path is chosen.

Collaborating for mutual advantage CPG companies and retailers can achieve mutual benefits by collaborating on product development and merchandising across several key areas.

Analytics-driven insights. To attract today’s more demanding consumers, both manufacturers and retailers must develop deep insights into shopper behaviors, needs and buying patterns. Such insights— which enable retailers and manufacturers to profile, analyze and target specific segments—are best developed by gaining a single and shared view of consumers.

Assortment planning. In today’s marketplace, retailers and manufacturers compete directly for the same shelf space. “Collaborative assortment” is needed here— bringing together each party’s distinct capabilities, data and consumer insights so they can view categories in a more holistic way to drive better growth.

Marketing and promotion. Rather than running separate campaigns to promote their respective products, manufacturers and retailers can combine forces to bundle both branded and private label products in the same promotion, such as a branded meal bundled with a private label soft drink.

Competing to win In categories and markets where competing is the better option, Accenture believes that winning is largely a matter of who achieves more “shopper relevance.” Increasing the ability to be relevant to shoppers requires a broad range of capabilities.

Identifying the most important product attributes: understanding with more accuracy the specific product attributes important to shoppers and where there are “white space” opportunities in the marketplace.

Using analytics to drive more predictive knowledge: predicting shoppers’ buying behaviors with more accuracy.

Driving advantage through innovation: engaging in innovative product development to create more relevant and timely products.

Building multichannel relationships: creating effective, multichannel relationships and building loyalty by delivering consistent experiences across digital, social and traditional channels.

Driving execution excellence at point of purchase: leveraging more statistical and fact-based price and promotion optimization, as well as better in-store sales execution.

In each of these areas, CPG companies have advantages they can build on to improve their positioning and performance against private label products. CPG companies have the scale, the R&D budgets and the global infrastructure that can give them an edge in the marketplace. They have the ability to extend the emotional connection that consumers feel toward their brand over a private label alternative.

Conclusion: Making the right decisionTraditionally, consumers have perceived the value of store brands to be mostly about cost savings. Today, that perception is changing dramatically—to the point where, in many cases and in many categories, store brands are perceived to be “just another brand,” even in premium categories.

CPG companies need to develop a brand strategy that includes clear positioning and effective analysis of the private label competitive situation. Successful strategies will be based on superior insights delivered through sophisticated analytics, providing a deep and detailed understanding of shopper preferences and behaviors.

The private label threat is likely to intensify in the coming years. Whether to compete or collaborate requires decision makers to have detailed information at the category, product and geographic level. The ability to leverage the right tools and approaches will be essential to success.

The total realized price for many products and services takes into account the full set of related transactions that occur before, during and after the sale. This window of opportunity opens earlier, and stays open longer, than companies often realize.